Current Status Review - PDF document

9AgendaCurrent Status ReviewStrengthe
9AgendaCurrent Status ReviewStrengthening Market PositionEnhancing Operating EfficiencyDeveloping Efficient OrganizationSummary910Strengthening market positionEnhancing operational efficiencyCreating efficient organizationStrengthening Market Position: Offering for business customersOffering for business customers, tailored to individual needs Target groupsBusiness customersPoland’s largest companies and international corporationsExisting participants of loyalty programmes (large and medium-sized enterprises)Small and medium-sized enterprises segment

Adjusting the fuel card offering to bus
Adjusting the fuel card offering to business segments and corporations’ individual needsIntroduction of a dedicated offering for SMEsand sole tradersProfessional sales system under the fleet scheme Offering1011Market offering for retail customers is becoming strongly polarised, requiring a new segment approach from PKN ORLENSource: Company estimatesCompetitive product offerHigher standard of servicesHigh revenue on non-fuel salesCurrent statusPKN ORLEN currently operates in both Premiumand Economysegments without clear positioning Competitive pricingMinimum

operating expenses of the service statio
operating expenses of the service stations, allowing them to optimise margins **Selected competitors of PKN ORLENTarget: PremiumofferingTarget: Economyoffering Hypermarket stationsPrivate stationsStandard offerPricePremiumsegmentEconomysegment*Strengthening market positionEnhancing operational efficiencyCreating efficient organization1112Strengthening market positionEnhancing operational efficiencyCreating efficient organizationStrengthening Market Position: Offering for retail customersSegmentation of PKN ORLEN’soffer for retail customersPremiumoffe

ring: strengthening segment positionEco
ring: strengthening segment positionEconomyoffering: new market platformPrice-oriented customersTowns, rural areas and locations with high traffic for self-service stationsCompetition with private and low-price stationsTarget groupsRetail customersValue and quality-oriented customersLargest cities and thoroughfaresCompetition with Western companies’ branded service stationsPremium fuelsBroad and uniform offering of non-fuel productsBroad range of basic servicesPrices competitive to those offered by Western companiesMore intensive marketing of fuels and non-fuel

productsStandard fuel offeringBasic of
productsStandard fuel offeringBasic offering of non-fuel productsPrices competitive to those offered by non-branded stations with similar service standardOfferingSales channelsMost attractive locations of own (CODO) and franchised (DOFO) stationsStandard shop formatsHigh and uniform service qualityOperations in less attractive locations of own (CODO), franchised (DOFO) and dealer-owned (DODO) stationsLower marketing expenditureLoyalty programme adjusted to local marketsNew self-service programmeSuperior quality of services and fuels offered, irrespective of the segm

ent1213Creation of two standardised o
ent1213Creation of two standardised offerings: Premiumand EconomyStrengthening market positionEnhancing operational efficiencyCreating efficient organizationStructure of the service stations network*W tym59 stacjiORLEN franszyza*Including 59 franchised stationsTOTAL469*846535381906PetrochemiaPockCPNBasic brandingFull branding*W tym59 stacjiORLEN franszyzaTOTALPremiumoffering2009 target structure of the service stations network1Economicofferingca. 1900ca. 900ca. 10001Ca. 200 service stations are to be closed due to unprofitabilityof adjusting individual loca

tions to the EU standards1314AgendaC
tions to the EU standards1314AgendaCurrent Status ReviewStrengthening Market PositionEnhancing Operating EfficiencyDeveloping Efficient OrganizationSummary1415Capital expenditure to reverse the current trend and to achieve a minimum 30% market share Capital expenditures Increase in sales fuels1,23 9004 90020042009The network structure segmentation will allow the current trend of losing fuel market share to be stopped and then reversed, resulting in a measurable increase in fuel sales (by 4.9% average annualised, with 4.3% growth of the fuel market):Increas

e in fuel sales by franchised stations (
e in fuel sales by franchised stations (DOFO)Stable continuation of performance improvement in sales of fuels at owned stationsProgramme of capital expenditure for network optimisation and restructuring:Network maintenanceConstruction of new stations, rebrandingand upgradeIntroduction of new products in the Premiumoffering2007-2009 average annualised4802005200640035020042009~ 9.0%�17.5%Network expansion and cost reduction are the key factors of ROACE growth15Target ROACE3+4.9% annuallyPLNmmlitres;’05–’09 average annualised growth in %Strengt

hening market positionEnhancing operati
hening market positionEnhancing operational efficiencyCreating efficient organization+ca.8.5 p.p.in%1Assumed that retail market accounts for 75% of diesel oil consumption and 100% of gasoline and LPG consumption2 Source: Company estimates; NaftaPolska; PFC Energy3 ROACE = NOPAT/average CE [NOPAT (net operating profit after tax)]/ [average CE (capital employed)]16Strengthening market positionEnhancing operational efficiencyCreating efficient organizationEnhancing Operating EfficiencySales channels management –network expansion plan1GoalsEnhancing finan

cial efficiencyExpansion of owned (CODO
cial efficiencyExpansion of owned (CODO) and franchised (DOFO) stationsAchieving a minimum market share of 30%2Increasing the profitability of owned stations network: ROACE above 17.5% in 2009ActionsConstruction and modernisation of ca. 50 owned stations in “Premium” standard and ca. 130 stations in “Economy” standard per yearAcquisition of ca. 40% “Premium” stations and ca. 70 “Economy” stations per year to be added to the franchised networkLPG sales development: increase in number of modules to 700+ in 2009 on owned stations (

CODO)Pressure on introducing operating s
CODO)Pressure on introducing operating standards required of franchised stations (DOFO)Inclusion of the Retail Division’s settlements to the new cost reduction programmeCentralisation of retail prices managementIntroduction of product category management¹Ca. 200 service stations are planned to be closed because of unprofitabilityof adjusting individual locations to EU standards2 PKN ORLEN market share in the retail market, and assumed the retail market accounts for 75% of diesel oil consumption and 100% of gasoline and LPG consumption1617AgendaCurrent Status Re

viewStrengthening Market PositionEnhan
viewStrengthening Market PositionEnhancing Operating EfficiencyDeveloping Efficient OrganizationSummary1718Implementation of the retail network development strategy will be also correlated with developing efficient organisationStrengthening market positionEnhancing operational efficiencyCreating efficient organizationRestructuring and reorganisation of the retail networkCentralisation of management areas and selected management functions (including procurement process and pricing management)Establishing a unit responsible for managing all of the distribution c

hannels (CODO, DOFO and DODO stations) a
hannels (CODO, DOFO and DODO stations) and categories of non-fuel productsDevelopment of employee competences and optimisation of operating processesImplementation of target-oriented incentive schemesIntroduction of higher security standards for customers and employeesDevelopment of an IT platform for centralised network management1819AgendaCurrent Status ReviewStrengthening Market PositionEnhancing Operating EfficiencyDeveloping Efficient OrganizationSummary1920Implementation of the key initiatives in the PKN ORLEN retail sales development plan will contribute

to an increase in shareholder valueSum
to an increase in shareholder valueSummaryKey operating and financial objectives (2009 r.)1Market share1,2min. 30%Sales volume4.9 bnl/yearIntensification of the FLOTA min. 20% programme(share in sales revenue)Average fuel sales per station�2.5 ml/year(company-owed stations [CODO])Non fuel margin’s share 30% in total retail margin(company-owed stations [CODO])ROACE3�17.5%Strengthening market position and enhancing operational efficiencyCurbing and reversing the current negative trend of the shrinking fuel market share:Implementation of strategies fo

r the Premiumand Economicofferings as pa
r the Premiumand Economicofferings as part of the quality segmentation of the PKN ORLEN offeringIncrease in sales to fleet customersIncreased operating efficiency due to the implementation of the distribution channels management systemDynamic growth of non-fuel salesRestructuring of the retail network by centralising decision-making areas ¹Assumed that the retail market accounts for 75% of diesel oil consumption and 100% of gasoline and LPG consumption.2 Source: Company estimates, NaftaPolska; PFC Energy; Citibank Handlowy3 ROACE = NOPAT/average CE [NOPAT (net ope

rating profit after tax)/ [average CE (c
rating profit after tax)/ [average CE (capital employed)]2021DisclaimerThis retail sales development plan(the “Presentation”) has been prepared by PKN ORLEN (the “Company”). Neither this Presentation nor any copy of it may be reproduced, redistributed or passed on, directly or indirectly, to any person for any purpose. The distribution of this Presentation in other jurisdictions may be restricted by law and persons into whose possession this Presentation comes should inform themselves about, and observe, any such restrictions. Any failure to comply

with these restrictions may constitute
with these restrictions may constitute a violation of applicable laws.It is not the purpose of this Presentation to provide, and you may not rely on this document as providing, a complete or comprehensive analysis of the Company’s financial or commercial position or prospects. A detailed description of the business and financial condition of the Company is set forth in the current and periodic reports to which youare invited to refer. Copies of the current and periodic reportsmay be obtained at the website of the Company.This Presentation and the associated slides

and discussion contain financial foreca
and discussion contain financial forecasts and other kinds of forward-looking statements. These forward-looking statements may include, but are not limited to, those regarding capital employed, capital expenditure, cash flows, costs, savings, debt, demand, depreciation, disposals, dividends, earnings, efficiency, gearing, growth, improvements, investments, margins, performance, prices, productivity, profits, returns, sales, special and exceptional items, strategy, synergies, tax rates, trends, value, volumes, and the effects of PKN ORLEN merger and acquisition activities

. Such forward-looking statements are n
. Such forward-looking statements are not guarantees of future performance. These statements are based on management’s current expectations or beliefs and are subject to a number offactors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks, uncertainties, and other factors include, but are not limited to developments in government regulations, foreign exchange rates, crude oil prices, crack spreads, political stability, economic growth, the completion of ongoing transactions. Ma

ny of these factors are beyond the Compa
ny of these factors are beyond the Company's ability to control or predict. Given these and other uncertainties, you are cautioned not to place undue reliance on any of the forward-looking statements contained herein or otherwise. The Company does not undertake, nor does it have, any obligation to provide updates and/or to release publicly any revisions to these forward-looking statements (which speak only as of the date hereof) to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be required under

applicable securities laws.No representa
applicable securities laws.No representation or warranty can be given with respect to the completeness or accuracy of the information in the Presentation. Neither the Company nor its shareholders, subsidiaries, advisors or representatives of such persons shall have any liability whatsoever (in negligence or otherwise) for whatever reasonarising from any use of this Presentation or its contents or otherwise arising in connection with this Presentation and nothing in this Presentation shall constitute an undertaking or representation made by the Company, its shareholders, s

ubsidiaries, advisors or representatives
ubsidiaries, advisors or representatives of such persons. This Presentation has been prepared solely for information and discussion purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument orto participate in any trading strategy. This Presentation does not constitute an offer or invitation to purchase or subscribe for any securities in any jurisdiction and no part of it shall form the basis of, or be relied upon in connection with, any contract, commitment or investment decision in relation thereto.2123Additio

nal Slides2324Examples of successful
nal Slides2324Examples of successful strategies of alternative brands and offerings validating the PKN ORLEN’snew segmentation strategyBrand MarketsKey programme featuresLocation A network of 74 stations managed by Shell’s subsidiary “MetaxOil”Metaxbrand had a strong image of cheap service station, which was used by Shell to position itself in low price segmentTo reduce costs, a self-service fuel sales model was introducedNew brand introduced as a response to the aggressive entry of Tango with a self-service station formatTinqoperates as a sel

f-service station and offers prices lowe
f-service station and offers prices lower by EUR 0.05–0.10 per litre than the traditional Shell stationsBy the end of 2003, 46 Tinqstations were launched in existing Shell locations which had generated unsatisfactory results1-2-3 is Statoil’sbrand for self-service stations, launched in response to Jet Conoco’sexpansionLocated close to hyper/supermarkets, with minimum capital expenditure equivalent to PLN 0,5–1mIn Norway, 55 stations operate in former Statoillocations or adjacent to Riminisupermarkets (Riminibeing Statoil’sretail partner) Norwa

y, Denmark, Baltic StatesDenmark Nether
y, Denmark, Baltic StatesDenmark Netherlands Source: PFC Energy2425Large potential of ca. 1.3–2.6 bnlitres of fuel sales to be taken over from non-branded service stations49%57%19%21%32%22%18.8 ths.15.9 ths.19922003Germany1.8 ths.1.4 ths.A similar trend is expected in Poland [number of service stations and % share]*40%4%56%7.4 ths.7.6 ths.20042009E35-40%~45-60%5-10%On developed markets, individual operators are being forced out by branded stations[number of service stations and % share]Hungary29%54%4%11%67%35%POLANDIndividual operators’ share expe

cted to decrease by ca. 10–20% in t
cted to decrease by ca. 10–20% in the medium termPKN ORLEN-branded stations’ sales growth potential is ca. 260–600m litresPKN ORLEN’sresponse to the forecast trends is the ECONOMYoffer to be positioned to compete with non-branded service stations19922003Individual operatorsOther fuel companiesTOP 5*Source: Company estimates; PFC Energy2526Key challenges related to the implementation of the retail network development strategyChallengesBuilding new skills/resources for an effective strategy implementationActionsImplementation, performance and ma

intenance of all the effects assumed in
intenance of all the effects assumed in the strategyFull accomplishment of economic assumptionsOptimising cooperation with the dealer-owned stations network (brands, new product offering)Initiating comprehensive programmes aiming at expansion and optimisation of employees’ competencesIntroducing and monitoring of performance management systemMore profound analysis of strategy implementation costsPreparing forms of cost reporting documents by separate organisational units (“design to cost”)Proactive communication of the strategy for the dealer-owned stat